[GRAPHIC OMMITTED]

To Our Shareholders:

Total Containment continued to experience slow demand for its products
and services during 2000. Major oil companies continued to slash spending on new
station construction and upgrades to existing station underground systems. High
oil prices also forced smaller station owners to focus capital on increased
inventory costs at the expense of new station expansions or station upgrades.
This slowdown, along with our continued effort to complete the pipe replacement
program, has put a strain on the financial situation of the Company during 2000.
Below are the highlights of both the Company's achievements and disappointments
during 2000.

ACHIEVEMENTS

MARKET POSITIONING

The market continued to focus on the short and long- term trends
associated with the potential replacement of Methyl Tertiary Butyl Ether
("MTBE") fuel additive. The market has heightened its awareness of the
environmental risks associated with MTBE escaping into the environment. As a
result, the Company has repositioned its products to meet the regulatory testing
requirements and increased customer comfort with the containment systems for
their fuel delivery systems.

Products include the new TotalTite sump system that provides superior
secondary containment along with an easy retestable vacuum system to assure
system "tightness". TotalTite sump systems can be installed in new installations
as well as retrofitted on existing systems through a patented TotalGard(R)
process which upgrades the system without breaking concrete or expensive
excavation. The Company has also launched a new secondarily contained remote
filling system which minimizes environmental exposure from the tanker truck hose
to the underground storage tanks.

DAYCO LITIGATION

In November 2000, Total Containment was awarded $23.0 million for breach of
contract associated with the deteriorating pipe supplied by Dayco Products, Inc.
As part of a counterclaim, Dayco Products, Inc. was awarded $3.7 million for an
accounts payable already reserved by the Company. The court is reviewing
post-trial motions submitted by both parties. The motions address whether the
$23.0 million verdict should be sustained, reduced, or eliminated, or, whether a
new trial should be granted on the Company's claims.

DISAPPOINTMENTS

SALES

The Company experienced a decrease in sales in 2000 versus 1999.
Reduced capital spending primarily by United States retailers accounted for the
decline. Net sales for the Company decreased to $16.7 million in 2000 from $24.9
million in 1999.

LOSSES

The net loss for the Company increased from $6.5 million in 1999 to
$9.1 million in 2000. The reduced revenues, increased legal expenses associated
with the Company's legal action against Dayco Products, Inc. for breach of
contract for supplying deteriorating pipe and the Company's election to reserve
against any increases in its deferred tax asset all contributed toward the
increased loss. Total Containment continued to reduce spending to adjust to the
market weakness.

PIPE REPLACEMENT PROGRAM

The Company continued to replace the pipe supplied by Dayco Products,
Inc. prior to September 1994, which the Company claims was subject to
deterioration due to a microbial fungus. Because of the market downturn, the
Company prioritized the remaining sites to pull the more severely deteriorated
pipe first. The Company expects to continue replacing pipe as results from
operations permit.

OUTLOOK

The Company has positioned its products to provide a solution to
customer concerns regarding MTBE and its regulatory impact. This should provide
growth opportunities in existing markets. We have been targeting new markets in
Eastern Europe, Africa, and Southeast Asia to provide increased revenues. The
Company continues to evaluate new products for the marketplace as well as
continually evaluate cost reduction programs to return the Company to
profitability.

Very truly yours,

Pierre Desjardins

Chairman of the Board

John R. Wright, Jr.
President and Chief Executive Officer

SELECTED FINANCIAL DATA

The following table sets forth certain consolidated summary financial data of
the Company for the periods presented.

Year Ended December 31,
2000 1999 1998 1997 1996
------- ------- ------- ------- --------
(In thousands, except per share data)

STATEMENT OF OPERATIONS DATA:
Net sales...................................................... $16,655 $24,913 $53,582 $ 45,649 $37,730
Cost of sales (excluding warranty
expense)...................................................... 14,542 20,618 30,991 30,698 24,288
------- ------- ------- ------- -------
2,113 4,295 22,591 14,951 13,442
Warranty expense............................................... 501 710 1,636 1,396 747
Special pipe warranty charge (reversal)(1)(2).................. -- 800 (3,347) 17,200 --
------- ------- ------- -------- --------
Gross profit (loss)............................................ 1,612 2,785 24,302 (3,645) 12,695
Selling, general and administrative............................ 8,385 11,510 12,261 12,307 10,665
Amortization of patents, licenses and
goodwill(3)(4)................................................ 245 245 430 521 508
Loss on write-off of patent and patent license(4).............. -- -- 3,727 565 --
Impairment loss (5)............................................ 275 -- -- -- --
Other operating expense(6)..................................... -- -- -- 1,800 --
------- ------- -------- -------- -------
Income (loss) from operations.................................. (7,293) (8,970) 7,884 (18,838) 1,522
Interest expense............................................... 877 725 537 627 362
------- ------- ------- -------- -------
Income (loss) before income taxes.............................. (8,170) (9,695) 7,347 (19,465) 1,160
Income tax expense (benefit)................................... 105 (3,525) 2,759 (7,109) 762
------- ------- ------- -------- -------
Net income (loss)(7)........................................... $(8,275) $(6,170) $ 4,588 $(12,356) 398
Preferred stock dividend(8).................................... 808 307 264 -- --
------- ------- ------- -------- -------
Net income (loss) applicable to common shareholders............ $(9,083) $(6,477) $ 4,324 $ (12,356) $ 398
====== ====== ======= ========= =======
Earnings (loss) per common share-basic(9)...................... $ (1.94) $ (1.39) $ .93 $ (2.66) $ .09
======= ======= ======= ======== =======
Earnings (loss) per common share - assuming dilution........... $ (1.94) $ (1.39) $ .89 $ (2.66) $ .08
======= ======= ======= ======== =======

December 31,
---------------------------------------------
2000 1999 1998 1997 1996
------- ------- ------- ------- --------
(In thousands)

BALANCE SHEET DATA:
Working capital ............................................... $ 3,147 $ 5,916 $ 4,761 $ 1,128 $ 8,261

Goodwill, patents and patent rights and license, net(3)........ 5,565 5,810 6,102 9,672 10,700

Deferred income taxes.......................................... 8,124 8,124 4,377 7,420 1,701

Total assets................................................... 26,098 30,792 37,155 40,047 34,965

Line of credit borrowings(10)(11).............................. 6,778 3,189 3,388 3,197 3,677

Debt(12)....................................................... 3,381 4,102 2,394 3,049 2,664
Shareholders' equity(9)........................................ 5,041 12,242 14,821 6,440 19,016

- --------------------

(1) As a result of a review performed during 1998 of the progress regarding the
Company's replacement of deteriorating pipe supplied by Dayco Products,
Inc. ("Dayco") prior to 1994 which the Company sold to end-users, as well
as the costs expected to be incurred to complete this process, the Company
recorded, during the third quarter of 1998, a reduction of the warranty
reserve of approximately $3.3 million.

(2) As a result of a review performed during the fourth quarter of 1999 of the
progress regarding the Company's replacement of deteriorating pipe supplied
by Dayco, and the effects of the Company's decision, during the second
quarter of 1999, to prioritize the pipe replacement at locations where the
pipe is significantly deteriorated, as well as the costs expected to be
incurred to complete this process, the Company recorded, during the fourth
quarter of 1999, a charge to the warranty reserve of $800,000.

(3) In connection with the initial public offering by the Company of 1,346,600
shares of its common stock (the "Offering"), the Company acquired the Tank
Jacket patent from Groupe Treco Ltee ("Treco"), in consideration of the
issuance by the Company to Treco of 45,000 shares of the Company's common
stock. The Tank Jacket patent was valued at $427,500. See Note 12 of Notes
to Consolidated Financial Statements.

(4) Due to a judicial order issued in September 1998 in litigation between the
Company and Environ Products, Inc., which declared invalid a patent
licensed by the Company, the Company wrote off in 1998 approximately $3.7
million of current unamortized cost of the patent license. See Note 12 of
Notes to Consolidated Financial Statements

(5) In December 2000, the Company determined to curtail the field service
operation as part of its continued efforts to adjust costs to current
market conditions. The impairment loss represents the write down to net
realizable value of the field service operation assets.

(6) The other expense of $1.8 million incurred in 1997 was associated with the
legal settlement regarding licensing of certain patented technology.

(7) The net loss in 1997, resulting principally from the $20.4 million of
warranty and other expense in 1997, created a deferred tax asset of
approximately $7.4 million. This future tax asset is reflected under
"Deferred Income Taxes" (both current and long-term) on the Company's
balance sheet. The Company currently believes that it is more likely than
not that the net carrying amount of this asset will be realized in future
years.

(8) In March 1998, Canam Steel Corporation purchased from the Company 400
shares of authorized Series A Floating Rate Preferred Stock of the Company
at $10,000 cash per share or $4 million in the aggregate. In December 1999,
Canam Steel Corporation purchased 400 shares of authorized Series B
Floating Rate Preferred Stock of the Company at $10,000 cash per share or
$4 million in the aggregate. In August 2000, Canam Steel Corporation
purchased 40 shares of authorized Series C Floating Rate Preferred Stock of
the Company at $50,000 cash per share or $2 million in the aggregate.

(9) Based on approximately 4.6 million weighted average shares outstanding
during 2000, 1999, 1998, 1997 and 1996.

(10) Increases in the line of credit and debt in 1996 were due to increased
working capital requirements for, among other things, warranty charges
related to the Enviroflex(R) pipe, as well as two term loans for expansion
and the acquisition of American Containment, Inc.

(11) In December 1999, the Company entered into a new $5.0 million line of
credit which was originally due to expire in June 2001. During 2000, the
line of credit was renegotiated to allow for $7.0 million in borrowings and
was extended to expire on April 1, 2002. The line of credit is to be used
for working capital purposes.

(12) In September 1999, the Company refinanced all of its existing long-term
debt with a new $4.0 million facility with Finloc Inc. (Finloc Inc. is the
holder of approximately 57% of the Company's common stock). Proceeds from
the loan were used to repay $1.9 million of long term debt, $1.0 million
was used to pay down the existing short term line of credit and
approximately $1.1 million was used to pay existing vendors who had
supplied various components in connection with the Company's installation
of its corrugator.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Except for historical information, this report may be deemed to contain
"forward-looking" statements. The Company desires to avail itself of the Safe
Harbor provisions of the Private Securities Litigation Reform Act of 1995 (the
"Act") and is including this cautionary statement for the express purpose of
availing itself of the protection afforded by the Act.

These forward-looking statements include statements with respect to the
Company's vision, mission, strategies, goals, beliefs, plans, objectives,
expectations, anticipations, estimates, intentions, financial condition, results
of operations, future performance and business of the Company, including but not
limited to, (i) projections of revenues, costs of raw materials, income or loss,
earnings or loss per share, capital expenditures, growth prospects, dividends,
the effect of currency fluctuations, capital structure and other financial
items, (ii) statements of plans and objectives of the Company or its management
or board of directors, including the introduction of new products, or estimates
or predictions of actions by customers, suppliers, competitors or regulating
authorities, (iii) statements of future economic performance, (iv) statements of
assumptions, such as the prevailing weather conditions in the Company's market
areas, and other statements about the Company or its business, and (v)
statements preceded by, followed by or that include the words, "may," "could,"
"should," "pro forma," "looking forward," "would," "believe," "expect,"
"anticipate," "estimate," "intend," "plan," or similar expressions. These
forward-looking statements involve risks and uncertainties, which are subject to
change based on various important factors (some of which, in whole or in part,
are beyond the Company's control). The following factors, among others, could
cause the Company's financial performance to differ materially from the goals,
plans, objectives, intentions and expectations expressed in such forward-looking
statements: (1) the strength of the United States and global economies in
general and the strength of the regional and local economies in which the
Company conducts operations; (2) the effects of, and changes in, U.S. and
foreign governmental trade, monetary and fiscal policies and laws; (3) the
timely development of competitive new products and services by the Company and
the acceptance of such products and services by customers; (4) willingness of
customers to substitute competitors' products and services and vice versa; (5)
the impact on operations of changes in U.S. and governmental laws and public
policy, including environmental regulations; (6) the level of export sales
impacted by export controls, changes in legal and regulatory requirements;
policy changes affecting the markets, changes in tax laws and tariffs, exchange
rate fluctuations, political and economic instability, and accounts receivable
collection; (7) changes in capital expenditures by major oil companies resulting
from proposed and completed mergers and consolidations of the oil companies; (8)
technological changes; (9) regulatory or judicial proceedings; (10) the failure
to generate sufficient pre-tax income to utilize the net carrying value of the
deferred tax assets currently recorded by the Company; (11) the impact of any
current or future litigation involving the Company; and (12) the success of the
Company at managing the risks involved in the foregoing.

The Company cautions that the foregoing list of important factors is
not exclusive. The Company does not undertake to update any forward-looking
statement, whether written or oral, that may be made from time to time by or on
behalf of the Company.

The following discussion and analysis of financial condition and
results of operations of the Company should be read in conjunction with the
consolidated financial statements of the Company, including the related notes
thereto, appearing elsewhere herein.

RESULTS OF OPERATIONS - 2000-1998

The following table sets forth, for the periods indicated, certain
financial data as a percentage of net sales:

YEAR ENDED DECEMBER 31,
---------------------------
2000 1999 1998
-------- ------- -------

Net sales............................... 100.0% 100.0% 100.0%
Cost of sales (excluding warranties).... 87.3 82.8 57.8
----- ----- ------
12.7 17.2 42.2
Warranty expense........................ 3.0 2.8 3.0
Special pipe warranty charge (reversal) -- 3.2 (6.2)
----- ------ ------
Gross profit............................ 9.7 11.2 45.4

Selling, general and administrative..... 50.3 46.2 22.9
Amortization of patents, licenses and
goodwill.............................. 1.5 1.0 0.8
Loss on write-off of patent and patent
license............................... -- -- 7.0
Impairment Loss......................... 1.7 -- --
----- ----- ------
Operating income (loss)................. (43.8) (36.0) 14.7
Interest expense........................ 5.3 2.9 1.0
----- ----- ------
Income (loss) before income taxes....... (49.1) (38.9) 13.7

Income tax expense (benefit)............ 0.6 (14.1) 5.1
----- ----- ------
Net income (loss)....................... (49.7)% (24.8)% 8.6%
----- ----- ------
Preferred stock dividend................ 4.8 1.2 .5
----- ----- ------
Net income (loss) applicable
to common shareholders.................. (54.5)% (26.0)% 8.1%
===== ===== ======

2000 VERSUS 1999

Net Sales

The Company's net sales for the year ended December 31, 2000 were $16.7
million compared to $24.9 million for the year ended December 31, 1999, a
decrease of 33.1%. The decrease was attributable to a decrease in sales from
both our flexible underground piping system products and our field service
operations, which was primarily attributable to a general slowdown in new
construction and renovation of petroleum service stations. A large number of
service stations have elected not to undertake renovations required to meet the
Environmental Protection Agency's ("EPA") regulations due to an extension of the
deadline for compliance. The mergers of several large oil companies resulted in
a delay in their capital expenditure plans which has also had a negative impact
on the Company's revenues.

Gross Profit (Loss)

The primary component of the Company's cost of sales is the product
manufacturing costs incurred by the Company as well as costs paid to various
third party manufacturers. Other components are the variable and fixed costs of
operating the Company's manufacturing, field service and warehousing operations,
depreciation of molds, tools and equipment, and warranty expense. The Company's
gross profit after the warranty provision for the year ended December 31, 2000
was $1.6 million compared to a $2.8 million profit after the warranty provision
for the year ended December 31, 1999. The decrease is due primarily to the
decrease in product sales volume as well as a decrease in the field service
operation sales volume. At the lower revenue levels, manufacturing, warehousing
and field service costs were not fully absorbed. Additionally, there was
production scrap expense related to the start up of new equipment, and higher
freight cost. As a result of a review performed during the fourth quarter of
1999 of the progress regarding the Company's replacement of deteriorating pipe
supplied by Dayco, and the effects of the Company's decision, during the second
quarter of 1999, to prioritize the pipe replacement at locations where the pipe
is significantly deteriorated, as well as the costs expected to be incurred to
complete this process, the Company recorded, during the fourth quarter of 1999,
a charge to the warranty reserve of $800,000. No special pipe warranty charge
was recorded in 2000.

Comparing margins before the effect of the warranty provision, the
Company experienced a decrease in gross profit primarily from decreased sales of
our main piping products and field service operations and the resulting
unabsorbed manufacturing, warehousing and field operation costs, as well as the
production scrap and freight cost.

The Company's gross profit percentage after the effect of the warranty
provision decreased to 9.7% for the year ended December 31, 2000, compared to a
gross profit percentage after the effect of the warranty provision of 11.2% for
the year ended December 31, 1999. The gross margin for both 2000 and 1999 was
adversely affected by the decrease in product sales volume as well as a decrease
in the field service operation sales volume and the unabsorbed manufacturing,
warehousing and field services operations costs. The gross profit margin
percentage in 1999 was also adversely affected by the special warranty charge of
$800,000. The Company's gross profit percentage before effect of the warranty
provision for the year ended December 31, 2000 decreased to 12.7%, compared to a
gross profit percentage before the effect of the warranty provision of 17.2% for
the year ended December 31, 1999. The decrease was primarily attributable to the
decrease in product sales volume as well as a decrease in the field service
operation sales volume.

Operating Expense

Selling, general and administrative expenses consist primarily of
salaries and related benefits, payroll taxes, commissions, royalties, legal
expenses and other general, administrative and overhead costs. Selling, general
and administrative expenses for the year ended December 31, 2000 were $8.4
million compared to $11.5 million for the year ended December 31, 1999. The
decrease from 1999 to 2000 resulted from a full year of benefit from a decrease
in personnel headcount and activity levels due to cost reductions initiated by
the Company during the second quarter of 1999. The 2000 reductions are partially
offset by approximately $950,000 in charges related to the Dayco lawsuits (See
Note 12 of Notes to Consolidated Financial Statements). The 1999 reductions are
partially offset by approximately $1.5 million in charges for reductions in
operations, shutdown of certain activities, write down of certain asset
valuations, severance costs, truck lease termination expenses, bank line of
credit renegotiation costs, and insurance coverage adjustments.

Amortization of Intangibles

Amortization of intangibles consists of the amortization of goodwill
over a period of 40 years and the amortization of various patents and licenses
that are amortized on a straight-line basis over the estimated lives of the
patents (which range from 13 to 17 years) at the acquisition date or subsequent
issuance date. Amortization expense for the year ended December 31, 2000 was
$244,885 compared to $244,884 for the year ended December 31, 1999. (See Note 12
of Notes to Consolidated Financial Statements).

Impairment Loss

In December 2000, as part of the Company's continuing efforts to reduce
spending to adjust to the current market weakness, the Company determined to
curtail the field service operations. The Company plans on exiting this service
operation by mid 2001. As a result of this decision, the Company wrote down the
carrying value of the assets for this operation to the net realizable value of
these assets. The write down amounted to $275,158 for the year ended December
31, 2000.

Interest Expense

Interest expense for the year ended December 31, 2000 was $876,820,
compared to $725,003 for the year ended December 31, 1999. Interest expense
occurs on term loans that were used for acquisitions and equipment purchases and
on the Company's working capital line of credit. The increase in 2000 is due to
a higher average balance outstanding during 2000 on the Company's lines of
credit versus 1999 that were used to fund the operations of the Company (See
Note 7 of Notes to Consolidated Financial Statements). The increase is also due
to a higher variable lending rate experienced in 2000 compared to 1999.

Income Taxes

The 2000 income tax expense represents the tax expense of the Company's
Belgian subsidiary for the year ended December 31, 2000. The Company recorded a
valuation reserve equal to the computed deferred tax benefit of it United States
operations of approximately $3.2 million for the year ended December 31, 2000.
In recording the valuation reserve for the 2000 period, the Company did not
increase its deferred tax asset on the balance sheet. The income tax benefit for
the year ended December 31, 1999 was $3.5 million. The Company's effective tax
rate was 36.3% during 1999. In recognizing this benefit in the 1999 period, the
Company increased its deferred tax asset on its balance sheet. Realization of
deferred tax assets associated with net operating loss (NOL) carryforwards is
dependent upon generating sufficient taxable income prior to their expiration.
Although realization is not assured for the net carrying amount of the deferred

tax assets at December 31, 2000, the Company currently believes that it is more
likely than not that the net carrying amount of this asset will be realized in
future years as a result of taxable income to be generated by its overall
operations, but will continue to monitor the valuation of this asset on an
ongoing basis.

Preferred Stock Dividends

In 2000, the Company accrued a dividend of $808,493 on the Company's
outstanding Series A , B and C Floating Rate Preferred Stock compared to
$306,599 on the Company's outstanding Series A and B Floating Rate Preferred
Stock in 1999. (See Note 10 of Notes to Consolidated Financial Statements).

Net Income (Loss) Applicable to Common Shareholders

The Company's net loss applicable to common shareholders for the year
ended December 31, 2000 was $9.1 million, or $1.94 per share, compared to net
loss applicable to common shareholders of $6.5 million, or $1.39 per share, for
the year ended December 31, 1999. The increase of $2.6 million was primarily a
result of the decrease in product sales volume as well as a decrease in the
field service operation sales volume, unabsorbed manufacturing, warehousing and
field service costs due to the lower sales volume, as well as production scrap
and higher freight cost. Additionally, the $3.2 million deferred tax valuation
reserve recorded in 2000 resulted in no tax benefit in 2000 compared to the
income tax benefit of $3.5 million for the year ended December 31, 1999.

1999 VERSUS 1998

Net Sales

The Company's net sales for the year ended December 31, 1999 were $24.9
million compared to $53.6 million for the year ended December 31, 1998, a
decrease of 53.5%. The decrease was attributable to a decrease in sales from
both our flexible underground piping system products and our field service
operations which was primarily attributable to a general slowdown in new
construction and renovation of petroleum service stations. A large number of
service stations have elected not to undertake renovations required to meet
Environmental Protection Agency's ("EPA") regulations due to an extension of the
deadline for compliance. The then recently announced merger plans of several
large oil companies resulted in a decrease in their capital expenditure plans
(with some large oil companies, a temporary suspension) which also had a
negative impact on the Company's revenues.

Gross Profit (Loss)

The primary component of the Company's cost of sales is the product
manufacturing costs incurred by the Company as well as costs paid to various
third party manufacturers. Other components are the variable and fixed costs of
operating the Company's manufacturing, field service and warehousing operations,
depreciation of molds, tools and equipment, and warranty expense. The Company's
gross profit after the warranty provision for the year ended December 31, 1999
was $2.8 million compared to a $24.3 million profit after the warranty provision
for the year ended December 31, 1998. The decrease is due primarily to the
decrease in product sales volume as well as a decrease in the field service
operation sales volume. Additionally, at the lower revenue levels,
manufacturing, warehousing and field service costs were not fully absorbed. As a
result of a review performed during the fourth quarter of 1999 of the progress
regarding the Company's replacement of deteriorating pipe supplied by Dayco, and
the effects of the Company's decision, during the second quarter of 1999, to
prioritize the pipe replacement at locations where the pipe is significantly
deteriorated, as well as the costs expected to be incurred to complete this

process, the Company recorded, during the fourth quarter of 1999, a charge to
the warranty reserve of $800,000. As a result of a review performed in 1998 of
the progress made regarding this replacement pipe program, including the costs
then expected to be incurred to complete this process, the Company recorded a
reduction of the warranty reserve of approximately $3.3 million in 1998.

The Company's gross profit percentage after the effect of the warranty
provision decreased to 11.2% for the year ended December 31, 1999, compared to a
gross profit percentage after the effect of the warranty provision of 45.4% for
the year ended December 31, 1998. The gross margin for 1999 was adversely
affected by the decrease in product sales volume as well as a decrease in the
field service operation sales volume and the unabsorbed manufacturing,
warehousing and field services operations costs. The gross profit margin
percentage was also adversely affected by the special warranty charge of
$800,000. The gross margin for 1998 experienced a benefit from the $3.3 million
reduction of the warranty reserve. The Company's gross profit percentage before
effect of the warranty provision for the year ended December 31, 1999 decreased
to 17.2%, compared to a gross profit percentage before the effect of the
warranty provision of 42.2% for the year ended December 31, 1998. The decrease
was primarily attributable to the decrease in product sales volume as well as a
decrease in the field service operation sales volume.

Operating Expense

Selling, general and administrative expenses consist primarily of
salaries and related benefits, payroll taxes, commissions, royalties, legal
expenses and other general, administrative and overhead costs. Selling, general
and administrative expenses for the year ended December 31, 1999 were $11.5
million, compared to $12.3 million for the year ended December 31, 1998. The
decrease from 1998 to 1999 resulted mainly from a decrease in personnel
headcount and activity levels due to cost reductions initiated by the Company
during the second quarter of 1999. These reductions are partially offset by
approximately $1.5 million in charges for reductions in operations, shutdown of
certain activities, write down of certain asset valuations, severance costs,
truck lease termination expenses, bank line of credit renegotiation costs, and
insurance coverage adjustments.

Amortization of Intangibles

Amortization of intangibles consists of the amortization of goodwill
over a period of 40 years and the amortization of various patents and licenses
that are amortized on a straight-line basis over the estimated lives of the
patents (which range from 13 to 17 years) at the acquisition date or subsequent
issuance date. The decrease in amortization expense to $244,884 in fiscal 1999
from $430,468 in fiscal 1998 is due to the write off of the patent license in
the third quarter of 1998 (See Note 12 of Notes to Consolidated Financial
Statements).

Other Expense

Other expense of $3.7 million incurred during the year ended December
31, 1998 was associated with the write off of a patent license (originally
capitalized by the Company) in connection with litigation which invalidated the
underlying patent. The Company does not believe that the loss of the patent has
had or will have a material adverse effect on its business. (See Note 12 of
Notes to Consolidated Financial Statements).

Interest Expense

Interest expense for the year ended December 31, 1999 was $725,003,
compared to $536,490 for the year ended December 31, 1998. Interest expense
occurs on term loans that were used for acquisitions and equipment purchases and
on the Company's working capital line of credit. The increase is due to a higher
average balance outstanding during 1999 on the Company's lines of credit versus
1998 that were used to fund the operations of the Company (See Note 7 of Notes
to Consolidated Financial Statements.) The increase is also due to a higher
variable lending rate experienced in the second half of 1999 compared to 1998.

Income Taxes

The income tax benefit for the year ended December 31, 1999 was $3.5
million compared to an expense of $2.8 million for the year ended December 31,
1998. The Company's effective tax rate was 36.3% during 1999 compared to an
effective tax rate of 37.6% in 1998. In recognizing this benefit in the 1999
period, the Company increased its deferred tax asset on its balance sheet.
Realization of deferred tax assets associated with net operating loss (NOL)
carryforwards is dependent upon generating sufficient taxable income prior to
their expiration. Although realization is not assured for the remaining deferred
tax assets at December 31, 1999, the Company currently believes that it is more
likely than not that the net carrying amount of this asset will be realized in
future years as a result of taxable income to be generated by its overall
operations, but will continue to monitor the valuation of this asset on an
ongoing basis.

Preferred Stock Dividends

In 1999, the Company accrued a dividend of $306,599 on the Company's
outstanding Series A and B Floating Rate Preferred Stock compared to $264,301 on
the Company's outstanding Series A Floating Rate Preferred Stock in 1998. (See
Note 10 of Notes to Consolidated Financial Statements).

Net Income (Loss) Applicable to Common Shareholders

The Company's net loss applicable to common shareholders for the year
ended December 31, 1999 was $6.5 million, or $1.39 per share, compared to net
income applicable to common shareholders of $4.3 million, or $.93 per share, for
the year ended December 31, 1998. The decrease of $10.8 million was primarily a
result of the decrease in product sales volume as well as a decrease in the
field service operation sales volume, unabsorbed manufacturing, warehousing and
field service costs, charges associated with the shutdown or curtailment of
several activities of the Company and the 1999 special warranty charge of
$800,000. The 1998 results were adversely affected by the $3.7 million write off
of a patent license, which was substantially offset by the reversal of $3.3
million of the warranty reserve.

SEASONALITY AND ECONOMIC CONDITIONS

The Company's sales are affected by the timing of planned construction
of new service stations and the retrofitting of existing service stations by end
users, both of which are influenced by inclement weather and general economic
conditions. Accordingly, the Company's net sales and operating results for the
quarter ended March 31 are generally adversely affected. The Company's sales
have also been adversely affected, to a slight extent, due to the recent Asian
economic crisis and political changes in certain Latin American countries.

The recently completed mergers of several large oil companies have
created a short-term uncertainty regarding their retail operation capital
expenditure plans. The Company's 2000 and 1999 results experienced adverse sales
and operating results due to a reduction in capital expenditures by the large
oil companies related to their retail operations. The decrease was also caused
in part by the EPA's extension of the deadline for conformity to the new tank
regulations.

INFLATION

Management does not believe that inflation has had a material impact
upon results of operations during the years ended December 31, 2000, 1999 or
1998.

RECENT ACCOUNTING PRONOUNCEMENTS

On January 1, 1999, the Company, in accordance with the Accounting
Standards Executive Committee of the American Institute of Certified Public
Accountants adopted SOP 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." The SOP segments an internal use
software project into stages and the accounting is based on the stage in which a
cost is incurred. The adoption of SOP 98-1 had no material impact on the
Company's financial position or results of operations.

On January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards to provide prominent
disclosure of comprehensive income items. Comprehensive income is the change in
equity of a business enterprise during a period from transactions and other
events and circumstances from non-owner sources. Prior period amounts have been
restated to conform to the provisions of SFAS No. 130. The adoption of SFAS No.
130 had no impact on the Company's financial position or results of operations.

On January 1, 1998, the Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." SFAS No. 131 requires
that public business enterprises report certain information about the operating
segments in a complete set of financial statements of the enterprise and in
condensed financial statements of interim periods issued to shareholders. It
also requires the reporting of certain information about their products and
services, the geographic area in which they operate, and their major customers.
The adoption of SFAS No. 131 had no impact on the Company's financial position
or results of operations.

FINANCIAL CONDITION; LIQUIDITY AND CAPITAL RESOURCES

The Company had working capital of approximately $3,147,000 at December
31, 2000, compared to working capital of approximately $5,916,000 at December
31, 1999. The decrease is due primarily to the 2000 operating loss of the
Company and the use by the Company of its line of credit to fund such losses.

In December 1999, the Company entered into a new $5.0 million line of
credit facility with a new bank. This line of credit, as well as funds from
operations, are used to satisfy the Company's working capital needs. During
2000, the line availability was increased to $7.0 million. At December 31, 2000,
the Company was in violation of the Agreement's defined tangible net worth
covenant. The Company received a waiver of the violation. In March 2001, the
line of credit agreement was amended to include a less restrictive net tangible
worth covenant and to extend the expiration date until April 1, 2002 (See Note 7
of Notes to Consolidated Financial Statements). Proceeds from this facility were
used to repay the old facility of approximately $3 million. This facility
charges interest at a rate of LIBOR plus 1.50% (8.13% as of December 31, 2000)
and is guaranteed by Canam Steel Corporation, a subsidiary of The Canam Manac
Group, Inc. Canam Steel Corporation charges a fee for this guarantee at the rate
of 0.50% of the outstanding balance. The line of credit requires the Company to
maintain $2.0 million in tangible net worth as defined in the agreement.

In September 1999, the Company refinanced all of its long-term debt of
approximately $1.9 million with a new five-year, $4.0 million facility with
Finloc, Inc. ("Finloc"), an affiliate of The Canam Manac Group, Inc. Finloc is
currently the holder of approximately 57% of the Company's common stock. The
facility charges interest at the rate of LIBOR plus 4.00% (11.26% at December
31, 2000). The loan is in the form of a six-month promissory note, which
requires payment of the entire principal and accrued interest at its term.
Finloc has provided a written notice of its intent to renew this note every six
months for a period of five years with a reduction of principal of approximately
$400,000 from the principal of the previous note. The proceeds of this note were
used to repay the $1.9 million outstanding under the previous long term
facilities, $1 million was used to pay down the existing short term line of
credit facility and approximately $1.1 million was used to pay existing vendors
who supplied various components in connection with the Company's installation of
its corrugator (See Note 6 of the Notes to Consolidated Financial Statements).

In August 2000, the Company's Board of Directors authorized 80 shares
of Series C Floating Rate Preferred Stock, and the Company sold 40 shares of
Series C Floating Rate Preferred Stock for $2.0 million cash in the aggregate to
Canam Steel Corporation. In August 2000, the Board also approved the issuance of
an additional 40 shares of Series C Preferred Stock for $2.0 million cash in the
aggregate. The Company issued these additional shares in the first quarter of
2001 for $2.0 million cash in the aggregate to Canam Steel Corporation. (See
Note 10 of Notes to Consolidated Financial Statements).

The Company invested $0.2 million, $2.4 million and $1.5 million in
capital equipment and leasehold improvements in 2000, 1999 and 1998,
respectively. The purchase of product molds and tooling constituted $158,000,
$188,000 and $197,000 of these capital expenditures in 2000, 1999, and 1998,
respectively. In the fourth quarter of 1999, the Company completed the
installation of its pipe manufacturing line at the Oaks, Pennsylvania facility
by purchasing, for approximately $2.1 million, and installing a "corrugator," a
plastic extruder which makes the base pipe for all of its piping products.
Previously, between 1997 and 1999, the Company purchased the base pipe from an
outside vendor.

Because the Company does not discharge a significant amount of material
into the environment, the Company does not anticipate that it will incur any
material costs or expenses in complying with federal, state and local
environmental laws or otherwise relating to the protection of the environment.
The Company does not anticipate that it will incur material costs and expenses
for research and development necessary to modify its existing product lines to
comply with changes in such laws and could, under certain circumstances, become
liable with respect to the discharge of materials into the environment that
results from a defect in a product.

The Company believes that its presently available funds, together with
cash flow expected to be generated from operations, amounts available under its
commitments from its commercial bank, and issuance of preferred stock will be
adequate to satisfy its anticipated working capital requirements for the
foreseeable future.

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders,
Total Containment, Inc.

We have audited the consolidated balance sheets of Total Containment, Inc. (a
Pennsylvania Corporation) and Subsidiaries as of December 31, 2000 and 1999, and
the related consolidated statements of operations, changes in shareholders'
equity and cash flows for each of the years in the three year period ended
December 31, 2000. These financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform our audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Total
Containment, Inc. and Subsidiaries at December 31, 2000 and 1999, and the
consolidated results of their operations and their consolidated cash flows for
each of the years in the three year period ended December 31, 2000 in conformity
with accounting principles generally accepted in the United States.

/s/ Grant Thornton LLP

Philadelphia, Pennsylvania
February 16, 2001
(except for Notes 7 and 10, as to which the date is March 29, 2001)

TOTAL CONTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS

DECEMBER 31,
-----------------------
2000 1999
----------- ----------
ASSETS
Current assets:
Cash................................................ $ 714,305 $ 730,822
Accounts receivable, net of allowance for
doubtful accounts of $476,366 and $359,839
for 2000 and 1999, respectively................... 2,975,089 4,158,027
Inventories......................................... 4,022,992 5,438,388
Deferred income taxes............................... 1,208,063 709,885
Other current assets................................ 281,342 624,730
----------- ----------
Total current assets ............................ 9,201,791 11,661,852

Molds and tooling, net................................ 281,536 329,439
Property and equipment, net........................... 4,133,493 5,576,097
Patents, patent rights and licenses, net.............. 191,222 250,551
Goodwill, net......................................... 5,374,052 5,559,608
Deferred income taxes................................. 6,916,317 7,414,495
----------- ----------
$26,098,411 $30,792,042
=========== ===========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Line of credit borrowings .......................... $ 150,000 $ --
Current portion of long-term debt................... 831,176 875,292
Accounts payable, trade and accrued expenses ....... 3,552,504 3,588,950
Accrued preferred stock dividends................... -- 306,599
Warranty reserve - current............................ 1,520,775 975,170
----------- ----------
Total current liabilities ....................... 6,054,455 5,746,011

Line of credit borrowings. ........................... 6,627,649 3,189,391
Accrued preferred stock dividends..................... 1,115,092 --
Other payable......................................... 4,020,481 4,020,481

Long-term debt........................................ 2,550,000 3,227,097
Non-current warranty reserve.......................... 689,942 2,366,725
----------- ----------
Total liabilities ............................... 21,057,619 18,549,705
----------- ----------
Commitments and contingencies......................... -- --
Shareholders' equity:
Preferred stock - Series A, $10,000 par value;
authorized, issued and outstanding 400 shares..... 4,000,000 4,000,000
Preferred stock - Series B, $10,000 par value;
authorized, issued and outstanding 400 shares..... 4,000,000 4,000,000
Preferred stock - Series C, $50,000 par value;
Authorized 80 shares, 40 issued and outstanding... 2,000,000 --
Common stock - $.01 par value; authorized
20,000,000 shares; 4,672,600 shares
issued and outstanding............................ 46,726 46,726
Capital in excess of par value ..................... 13,808,655 13,808,655
Accumulated deficit................................. (18,375,444) (9,292,432)

Accumulated other comprehensive loss.................. (439,145) (320,612)
----------- ----------
Total shareholders' equity ....................... 5,040,792 12,242,337
----------- ----------
$26,098,411 $30,792,042
=========== ===========

The accompanying notes are an integral part of these
financial statements.

TOTAL CONTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31,

2000 1999 1998
------------ ------------ -----------

Net sales ............................................ $ 16,655,396 $ 24,913,485 $53,581,818
Cost of sales (excluding warranty
expense) ............................................ 14,541,998 20,618,098 30,991,472
------------ ------------ ------------
2,113,398 4,295,387 22,590,346
Warranty expense ..................................... 500,865 709,727 1,635,660
Special pipe warranty charge (reversal) .............. -- 800,000 (3,347,567)
------------ ------------ ------------
Gross profit ......................................... 1,612,533 2,785,660 24,302,253
Selling, general and administrative .................. 8,385,435 11,510,429 12,261,077
Amortization of patents, licenses and
goodwill ............................................ 244,885 244,884 430,468
Loss on write-off of patent and patent
license ............................................. -- -- 3,727,250
Impairment Loss ...................................... 275,158 -- --

------------ ------------ ------------
Income (loss) from operations ........................ (7,292,945) (8,969,653) 7,883,458
Interest expense ..................................... 876,820 725,003 536,490
------------ ------------ ------------
Income (loss) before income taxes .................... (8,169,765) (9,694,656) 7,346,968
Income tax expense (benefit) ......................... 104,754 (3,524,709) 2,759,195
------------ ------------ ------------
Net income (loss) .................................... (8,274,519) (6,169,947) 4,587,773
Preferred stock dividend ............................. 808,493 306,599 264,301
------------ ------------ ------------
Net income (loss) applicable to common
shareholders ........................................ $ (9,083,012) $ (6,476,546) $ 4,323,472
============ ============ ============
Per share data:
Earnings (loss) per common share -
basic .............................................. $ (1.94) $ (1.39) $ .93
============ ============ ============
Earnings (loss) per common share
assuming dilution .................................. $ (1.94) $ (1.39) $ .89
============ ============ ============
Weighted average shares used in com-
putation of earnings (loss) per
common share - basic ............................... 4,672,600 4,667,855 4,646,000
============ ============ ============
Weighted average shares used in com-
putation of earnings (loss) per
common share - assuming dilution ................... 4,672,600 4,667,855 4,859,872
============ ============ ============

The accompanying notes are an integral part of
these financial statements.

TOTAL CONTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000

ACCUMULATED
OTHER
CAPITAL COMPREHENSIVE
PREFERRED COMMON IN EXCESS ACCUMULATED INCOME
STOCK STOCK OF PAR VALUE DEFICIT (LOSS) TOTAL
--------- ------- ------------ ---------- ----------- --------

January 1, 1998..................... -- 46,416 13,728,778 (7,139,358) (195,980) 6,439,856

Net income.......................... 4,587,773 4,587,773
Equity adjustment from foreign
currency translation............... 30,144 30,144
Issuance of preferred stock......... 4,000,000 4,000,000
Issuance of common stock............ 110 27,577 27,687
Preferred stock dividends........... (264,301) (264,301)
---------- ------ ---------- ----------- --------- -----------
December 31, 1998.................. 4,000,000 46,526 13,756,355 (2,815,886) (165,836) 14,821,159

Net loss .......................... (6,169,947) (6,169,947)
Equity adjustment from foreign
currency translation............... (154,776) (154,776)
Issuance of preferred stock......... 4,000,000 4,000,000
Issuance of common stock............ 200 52,300 52,500
Preferred stock dividends........... (306,599) (306,599)
---------- ------ ---------- ----------- --------- -----------
December 31, 1999.................. $8,000,000 $46,726 $13,808,655 $ (9,292,432) $(320,612) $12,242,337

Net loss .......................... (8,274,519) (8,274,519)
Equity adjustment from foreign
currency translation............... (118,533) (118,533)
Issuance of preferred stock......... 2,000,000 2,000,000
Issuance of common stock............ --
Preferred stock dividends........... (808,493) (808,493)
---------- ------ ---------- ----------- --------- -----------
December 31, 2000.................. $10,000,000 $46,726 $13,808,655 $(18,375,444) $(439,145) $ 5,040,792
========== ====== =========== ============ ========= ===========

The accompanying notes are an integral part of
these financial statements.

TOTAL CONTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,

2000 1999 1998
------------ ------------ ------------

Cash flows from operation activities:

Net income (loss) .............................................. $ (8,274,519) $ (6,169,947) $ 4,587,773

Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:

Depreciation and amortization ................................. 1,663,504 1,629,614 1,940,778
Impairment Loss ............................................... 275,158 -- --
Loss on write-off of patent ................................... -- -- 3,727,250
Change in assets and liabilities:
Accounts receivable .......................................... 1,182,938 8,834,718 (5,424,842)
Inventories .................................................. 1,415,396 2,138,847 (303,804)
Other assets ................................................. 343,388 78,953 1,525,848
Deferred taxes ............................................... -- (3,746,956) 3,042,634
Accounts payable, trade and
accrued expenses ............................................ (36,446) (2,275,025) (436,771)
Warranty reserve ............................................. (1,131,178) (2,734,445) (11,205,524)
------------ ------------ ------------
Net cash used for
operating activities ....................................... (4,561,759) (2,244,241) (2,546,658)
============ ============ ============

Cash flows from investing activities:

Purchase of molds and tooling .................................. (158,013) (187,948) (197,066)
Purchase of property and equipment ............................. (45,257) (2,237,346) (1,279,361)
------------ ------------ ------------
Net cash used for investing
activities ................................................. (203,270) (2,425,294) (1,476,427)
============ ============ ============

Cash flows from financing activities:

Proceeds from sale of preferred stock .......................... 2,000,000 4,000,000 4,000,000
Dividends paid on Preferred Stock .............................. -- (264,301) --
Proceeds from sale of common stock ............................. -- 52,500 27,687
Borrowings on long-term debt ................................... -- 2,125,392 105,000
Payments on long-term debt ..................................... (721,213) (417,377) (759,420)
Net borrowings (payments) under line
of credit ..................................................... 3,588,258 (198,609) 191,000
------------ ------------ ------------
Net cash provided by
financing activities ......................................... 4,867,045 5,297,605 3,564,267
------------ ------------ ------------
Effect of foreign currency exchange
rate ........................................................... (118,533) (29,412) (21,137)
------------ ------------ ------------
Net increase (decrease) ......................................... (16,517) 598,658 (479,955)
Cash and cash equivalents at beginning
of year ........................................................ 730,822 132,164 612,119
------------ ------------ ------------

Cash and cash equivalents at end of
year ........................................................... $ 714,305 $ 730,822 $ 132,164
============ ============ ============
Supplemental cash flow information:

Interest paid .................................................. $ 840,375 $ 533,105 $ 540,469
Income taxes paid (received) net of
refunds ........................................................ $ 240,055 $ (369,407) $ (1,567,063)

The accompanying notes are an integral part of these financial statements.

TOTAL CONTAINMENT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS

Total Containment, Inc. (the "Company") is a leading manufacturer and
distributor of underground systems, products and services for the conveyance and
containment of petroleum and alcohol based motor vehicle fuels from underground
storage tanks to aboveground fuel dispensers. The principal end users of the
Company's products are service stations, convenience stores and other retail
sellers of gasoline, gasohol and other motor vehicle fuels, government bodies,
utilities, and other fleet vehicle operators.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries, TCI-Environment
NV/SA (TCIE-NV), Rene Morin, Inc., FMW Inc. and American Containment, Inc. All
significant intercompany balances and transactions have been eliminated in
consolidation. The Consolidated Balance Sheet for 1999 was reclassified to
conform with current year presentation.

On July 11, 1996, the Company purchased all of the assets and certain
liabilities of American Containment, Inc., a manufacturer and installer of
fiberglass tank and dispenser sumps. This transaction was accounted for under
the purchase method of accounting. Goodwill associated with this purchase is
being amortized over approximately forty years.

FOREIGN CURRENCY TRANSLATION. TCIE-NV used the Belgian Franc through 1998
and has used the Euro since January 1, 1999 as its functional currency. Changes
in the amount of the translation adjustment during each reporting period are
reported as a separate component of Shareholders' Equity under Accumulated Other
Comprehensive Income.

CONCENTRATION OF CREDIT RISKS. The Company's trade receivables result
primarily from the sale of product to distributors who sell to automobile
service stations and convenience store markets including several large chains.

The Company traditionally relies on a limited number of suppliers on an
exclusive basis.

INVENTORIES. Inventories are stated at the lower of cost or market, cost
being determined on a first-in, first-out (FIFO) basis.

PROPERTY AND EQUIPMENT. Property and equipment are valued at cost.
Depreciation is computed on a straight-line basis over the useful lives of the
assets.

PATENTS, PATENT RIGHTS AND LICENSES. The Company capitalizes costs of
acquired patents, and other costs related to obtaining and maintaining patents.
Patents, patent rights and licenses are being amortized on a straight-line basis
over the estimated lives of the patents and licenses, which range from 13 to 17
years. Amortization expense aggregated $59,329, $59,329 and $255,500 for 2000,
1999 and 1998, respectively. Due to a judicial order issued in September 1998 in
the litigation between the Company and Environ Products, Inc., which declared
the underlying patent to the license invalid, the Company wrote off in 1998
approximately $3.7 million of current unamortized cost of the patent license.
Accumulated amortization was $465,278 and $405,949 at December 31, 2000 and
1999, respectively.

GOODWILL. Goodwill represents the excess of the purchase price over the
fair value of the net tangible and identified intangible assets, and is being
amortized over forty years. Goodwill amortization approximated $185,556,
$185,555 and $174,968 for 2000, 1999 and 1998, respectively. Accumulated
goodwill amortization was $1,814,196 and $1,628,640 at December 31, 2000 and
1999, respectively.

The Company evaluates the carrying value of long-lived assets, including
goodwill, whenever changes in circumstances indicate the carrying amount of such
assets may not be recoverable. In performing such review for recoverability, the
Company compares the expected future cash flows to the carrying value of
long-lived assets and identifiable intangibles. If the anticipated undiscounted
future cash flows are less than the carrying amount of such assets, the Company
recognizes an impairment loss for the difference between the carrying amount of
the assets and their estimated fair value.

COMPANY SPONSORED RETIREMENT PLAN. Certain employees of the Company
participate in a Company sponsored 401(k) retirement plan. The Company's only
costs during the years ended December 31, 2000, 1999, and 1998 were the
management fees charged for administration of the plan. These costs were
immaterial in each of the three years presented.

WARRANTY RESERVE. The Company's Tank Jacket and Pipe Jacket product lines
carry a warranty of one year for workmanship and materials. The Enviroflex
product line carries a ten-year warranty for workmanship and materials. The Tank
Jacket product line also carries a thirty-year warranty for corrosion from
certain specified materials. The Company's warranties are limited to replacement
of defective material; they do not cover by their terms costs associated with
leaks or spillage of tank or pipe contents. Management has accrued a reserve for
anticipated warranty and other product liability claims and associated legal
fees based upon its industry knowledge and actual claims experience.

As the result of a 1996 review of piping problems, the Company, during the
third quarter of 1997, increased its warranty reserve by approximately $18.6
million primarily to cover the Company's estimate of the cost then anticipated
to be incurred over a two- to three-year period for inspecting and replacing
pipe with deteriorating cover material on the retractable inner pipe portion of
the Company's double-wall underground fuel dispensing and containment systems
installed between 1990 and 1994 at over 4,000 sites. The deterioration results
from a microbiological fungus, which, under certain conditions, affects the
outer layers of the system's primary (inner) retractable pipe. The Company has
instituted litigation against the supplier of the pipe to recover the costs to
replace such pipe, as well as other damages. As a result of a review performed
during the third quarter of 1998 of the progress made regarding this replacement
pipe program, as well as the costs then expected to be incurred to complete this
process, the Company recorded, during the third quarter of 1998, a reduction of
the warranty reserve of approximately $3.3 million. As a result of a review
performed during the fourth quarter of 1999 of the progress regarding the
Company's replacement of deteriorating pipe, and the effects of the Company's
decision, during the second quarter of 1999, to prioritize the pipe replacement
at locations where the pipe is significantly deteriorated, as well as the costs
expected to be incurred to complete this process, the Company recorded, during
the fourth quarter of 1999, a charge to the warranty reserve of approximately
$800,000. (See Note 12 of the Notes to Consolidated Financial Statements).

INCOME TAXES. The Company uses the liability method (specified by SFAS No.
109) of accounting for income taxes. Under this method, deferred tax liabilities
and assets are recorded for the expected future tax consequences of temporary
differences between the carrying amounts for financial statement purposes and
the tax bases of assets and liabilities. In 2000, the company recorded a
valuation reserve of approximately $3.2 million, representing the computed
deferred tax benefit for its United States operations during 2000. Thus, the
2000 income tax expense represents the tax expense of the Company's Belgian
subsidiary for the year ended December 31, 2000. Income tax expense (benefit)
for the years ended December 31, 1999 and 1998, were a benefit of $3.5 million
and a charge of $2.8 million, respectively. The variances from 2000 to 1999 and

1999 to 1998 were due to the change in the Company's income before income taxes
and the valuation allowance recorded in 2000. An income tax benefit and
associated $7.4 million deferred tax asset were recorded in 1997, which was
derived principally from the future deductibility of warranty expense recognized
for financial statement purposes in 1997. The deferred tax asset was segmented
into current and long-term portions based upon projections as to the tax period
in which the Company expected to receive these benefits. The Company utilized a
portion of the deferred tax asset during 1998, thereby decreasing its balance to
$4.4 million as of December 31, 1998. As a result of the losses sustained by the
Company during 1999, the Company increased its deferred tax asset by $3.7
million to $8.1 million as of December 31, 1999. Realization of deferred tax
assets associated with NOL Carryforwards is dependent upon generating sufficient
taxable income prior to their expiration. (See Note 11 of the Notes to
Consolidated Financial Statements).

The Company's foreign subsidiary has undistributed retained earnings of
$2.0 million and $1.8 million at December 31, 2000 and 1999, respectively.
Because a substantial portion of these earnings has been reinvested in working
capital and the remainder is not expected to be remitted to the Company, U.S.
income and foreign withholding taxes have not been provided on these unremitted
earnings.

REVENUE RECOGNITION. Sales are recorded upon shipment. Expenses for
estimated product returns and warranty costs are accrued in the period of sale
recognition.

ADVERTISING COST. The Company expenses advertising costs as incurred.

RESEARCH AND DEVELOPMENT. Research and Development cost, which are expensed
by the Company as incurred, were approximately $153,000, $271,000 and $375,000
in 2000, 1999, and 1998, respectively.

NEW ACCOUNTING PRONOUNCEMENTS. On January 1, 1999, the Company, in
accordance with the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants adopted SOP 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use." The SOP
segments an internal use software project into stages and the accounting is
based on the stage in which a cost is incurred. The adoption of SOP 98-1 had no
material impact on the Company's financial position or results of operations.

On January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards to provide prominent
disclosure of comprehensive income items. Comprehensive income is the change in
equity of a business enterprise during a period from transactions and other
events and circumstances from non-owner sources. Prior period presentations have
been restated to conform to the provisions of SFAS No. 130. The adoption of SFAS
No. 130 had no impact on the Company's financial position or results of
operations. The Company's total comprehensive income (loss) for the years ended
December 31, 2000, 1999 and 1998 was $(8,393,052), $(6,324,723) and $4,617,917
respectively.

On January 1, 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131 requires that
public business enterprises report certain information about the operating
segments in a complete set of financial statements of the enterprise and in
condensed financial statements of interim periods issued to shareholders. It
also requires the reporting of certain information about their products and
services, the geographic area in which they operate, and their major customers.
The adoption of SFAS No. 131 had no impact on the Company's financial position
or results of operation.

USE OF ESTIMATES. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. Significant estimates made by management that are reasonably subject
to change include the warranty reserve and deferred tax assets.

3. INVENTORIES

Inventories consist of the following:

December 31,
------------------------
2000 1999
--------- ---------
Raw materials..................................... $ 216,667 $ 525,923
Finished goods.................................... 3,806,325 4,912,465
----------- -----------
$ 4,022,992 $ 5,438,388
=========== ===========

4. MOLDS AND TOOLING

Molds and tooling include the following:

Useful
Lives December 31,
------- -----------------------
2000 1999
---------- ----------

Molds and tooling ....................... 3 years $ 2,724,495 $ 2,566,482
Less - accumulated amortization........... (2,442,959) (2,237,043)
----------- -----------
$ 281,536 $ 329,439
=========== ===========

Amortization expense of molds and tooling costs was $205,916, $287,791 and
$698,058 for the years ended December 31, 2000, 1999 and 1998, respectively.

5. PROPERTY AND EQUIPMENT

Property and equipment include the following:

Useful
Lives December 31,
-----------------------
2000 1999
---------- ----------
Furniture, fixtures and
office equipment....................... 3-5 years $ 959,828 $ 1,045,605
Equipment ............................... 5-10 years 5,907,673 6,183,542
Leasehold improvements................... lease term 908,427 963,866
---------- -----------
7,775,928 8,193,013
Less - Accumulated depreciation.......... (3,642,435) (2,616,916)
---------- -----------
$ 4,133,493 $ 5,576,097
=========== ===========

Depreciation expense on property and equipment was $1,212,703, $1,096,939
and $814,663 for the years ended December 31, 2000, 1999 and 1998, respectively.

In the fourth quarter of 1999, the Company completed the installation of
its pipe manufacturing line at the Oaks, Pennsylvania facility by purchasing,
for approximately $2.1 million, a "Corrugator", a plastic extruder which makes
the base pipe for all of its piping products. Previously, between 1997 and 1999,
the Company purchased the base pipe from an outside vendor.

6. LONG-TERM DEBT

In September 1999, the Company refinanced all of its long-term debt of
approximately $1.9 million with a new five-year $4.0 million facility with
Finloc, Inc. ("Finloc"), an affiliate of The Canam Manac Group, Inc. Finloc is
currently the holder of approximately 57% of the Company's common stock. The
facility charges interest at the rate of LIBOR plus 4.00% (11.26% at December
31, 2000). The loan is in the form of a six-month promissory note, which
requires payment of the entire principal and accrued interest at its term.
Finloc has provided a written notice of its intent to renew this note every six
months for a period of five years with a reduction of principal of approximately
$400,000 from the principal of the previous note. The proceeds of this note were
used to repay the $1.9 million then outstanding under the previous long-term
facilities, $1 million was used to pay down the then existing short term line of
credit facility and approximately $1.1 million was used to pay then existing
vendors who supplied various components in connection with the Company's
installation of its corrugator (See Note 5 of Notes to Consolidated Financial
Statements). At December 31, 2000 and 1999, a balance of $3,350,000 and
$4,000,000, respectively was outstanding.

In 1997, the Company borrowed from the bank under a term loan credit
facility to acquire equipment related to a new pipe manufacturing line. The term
loan charged interest at the bank's national commercial rate plus .125% and was
secured by all equipment financed thereunder. At August 31, 1999, $807,977 was
outstanding under this term loan. This loan was refinanced in September 1999 as
discussed above.

In 1996, the Company executed a term loan with a bank for $1,000,000, which
was used for the acquisition of American Containment, Inc. The term loan charged
interest at the bank's national commercial rate plus .125% and was secured by
the assets of American Containment, Inc. At August 31, 1999, $399,964 was
outstanding under this term loan. This loan was refinanced in September 1999 as
discussed above.

In 1996, Rene Morin, Inc. borrowed under a term loan for manufacturing
equipment. The term loan bears interest at 9.5%. At December 31, 2000 and 1999,
a balance of $12,000 and $48,000, respectively, was outstanding.

In 1995, the Company executed a term loan agreement with a bank for
$1,600,000, which was used exclusively for the purchase of equipment. The term
loan charged interest at the bank's national commercial rate plus .125% and was
secured by all equipment financed thereunder. At August 31, 1999, $666,667 was
outstanding under the term loan. This loan was refinanced in September 1999 as
discussed above.

Aggregate maturities of the borrowings are as follows:

2001 .............................................. 831,176
2002 .............................................. 800,000
2003 .............................................. 800,000
2004 .............................................. 800,000
2005 .............................................. 150,000
---------
3,381,176
=========
7. LINE OF CREDIT

In December 1999, the Company entered into a new $5.0 million line of
credit facility with a new bank, with an original expiration date of June 1,
2001. The line of credit is to be used for operating working capital purposes.
During 2000, the line availability was increased to $7.0 million. At December
31, 2000, the Company was in violation of the agreement's deferred tangible net
worth covenant calculation. The Company received a waiver for the violation. In
March 2001, the line of credit agreement was amended to extend the expiration
date until April 1, 2002. The agreement was further amended to modify the
calculation of the tangible net worth to exclude the "Other payable" as
disclosed on the balance sheet, and to require the Company to maintain $2.0
million in modified tangible net worth as defined in the agreement. Due to the
extension of the expiration date and the modification to the covenant, which the
Company believes it will comply with at the required measurement dates within
the next twelve months, the Company has classified the line of credit as
long-term. This facility charges interest at a rate of LIBOR plus 1.50 % (10.13%
as of December 31, 2000) and is guaranteed by Canam Steel Corporation, a
subsidiary of The Canam Manac Group, Inc. Canam Steel Corporation is currently
the holder of all of the Preferred Stock of the Company. Canam Steel Corporation
charges a fee for this guarantee at the rate of .50% of the outstanding balance.
(The guarantee fee for the year ended December 31, 2000 was $31,667.) At
December 31, 2000 and 1999, a balance of $6,627,649 and $3,189,391,
respectively, was outstanding.

In April 1998, the Company established an overall working capital line
of credit with its then current bank at $10.0 million. Subsequently, the overall
line availability was reduced to $4.0 million by November 1999. This facility
provided for financing of working capital needs and equipment purchases and was
secured by the Company's receivables, inventory and other assets. The initial
interest rate for this facility was the prime rate plus one-quarter (1/4)
percent and was to expire on December 31, 1999. As of June 30, 1998, the Company
met certain financial covenants contained in the line of credit agreement and
therefore received a reduction in the interest rate effective September 1, 1998,
down to the prime rate (7.75% at December 31, 1998). This line of credit was
replaced by the line of credit discussed above.

In April 1996, Rene Morin, Inc. entered into a five-year $150,000 line
of credit facility, that was guaranteed by the Company. This facility charges
interest at a rate of prime plus 1.0% (10.50% as of December 31, 2000). At
December 31, 2000 and 1999, a balance of $150,000 and $0, respectively, was
outstanding.

Interest expense on borrowings under the lines of credit was $441,900,
$499,366 and $307,794 in 2000, 1999 and 1998, respectively.

8. EARNINGS (LOSS) PER SHARE

The following table illustrates the required disclosure of the
reconciliation of the numerators and denominators of the basic and diluted EPS
computations.

FOR THE YEAR ENDED DECEMBER 31, 2000
---------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------ ------------- ---------
Loss applicable to common shareholders (9,083,012)
===========
BASIC EPS

Loss applicable to common shareholders (9,083,012) 4,672,600 $ (1.94)

EFFECT OF DILUTIVE SECURITIES
Options -- -- --
------------ ---------- -------
DILUTED EPS

Loss applicable to common shareholders
plus assumed conversions (9,083,012) 4,672,600 $(1.94)
=========== =========== ======

Options to purchase 530,000 shares of common stock at a range of $0.65 to $9.50
a share were outstanding during 2000 that were not included in the computation
of diluted EPS because the effect of the options would have been antidilutive.
The options, which expire from December 31, 2001 to December 31, 2010, were
still outstanding at December 31, 2000.

YEAR ENDED DECEMBER 31, 1999
------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- --------
Loss applicable to common shareholders (6,476,546)
===========
BASIC EPS

Loss applicable to common shareholders (6,476,546) 4,667,855 $(1.39)

EFFECT OF DILUTIVE SECURITIES
Options -- -- --
----------- ----------- ------
DILUTED EPS

Loss applicable to common shareholders
plus assumed conversions (6,476,546) 4,667,855 $(1.39)
=========== =========== ======

Options to purchase 715,000 shares of common stock at a range of $2.50 to
$9.50 a share were outstanding during 1999 that were not included in the
computation of diluted EPS because the effect of the options would have been
antidilutive. Options to purchase 375,000 shares, which expire from December 31,
2001 to December 31, 2009, were still outstanding at December 31, 2000.

FOR THE YEAR ENDED DECEMBER 31, 1998
------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- --------
Income applicable to common shareholders 4,323,472
===========
BASIC EPS

Income applicable to common shareholders 4,323,472 4,646,000 $ .93

EFFECT OF DILUTIVE SECURITIES
Options -- 213,872 --
----------- ----------- -----
DILUTED EPS

Income applicable to common shareholders
plus assumed conversions 4,323,472 4,859,872 $ .89
=========== =========== =====

Options to purchase 148,000 shares of common stock at a range of $6.63 to
$9.50 a share were outstanding during 1998 that were not included in the
computation of diluted EPS because the options' exercise price was greater than
the average market price of the common shares. Options to purchase 100,000
shares, which expire from December 31, 2001 to August 7, 2002, were still
outstanding at December 31, 2000.

9. STOCK OPTION PLAN

At December 31, 2000, the Company had two stock option plans. The Company
applies APB Opinion 25, "Accounting for Stock Issued to Employees" and related
Interpretations in accounting for its plans. Accordingly, no compensation costs
have been recognized for either plan.

On January 16, 1994, the shareholders of the Company approved a Stock
Compensation Plan (the "Plan"). The Plan authorizes the issuance of up to
400,000 shares of the common stock to key employees of the Company and its
subsidiaries. The number of shares authorized for issuance under the Plan, and
the outstanding awards granted under the Plan, are subject to adjustment in the
event of stock dividends, stock splits and similar transactions. Awards may be
granted in the form of nonqualified stock options, incentive stock options,
stock appreciation rights, performance units and restricted stock. The options
granted under the Plan are restricted and unvested at the date of grant. Stock
options are issued at prices equal to the market price at the date of grant. The
stock options have a vesting period of five years from the date of issuance.

On February 27, 1997, the Board of Directors of the Company approved and
adopted the 1997 Stock Compensation Plan, which was approved by shareholders on
April 11, 1997. The 1997 Plan authorizes the issuance of up to an additional
400,000 shares of Common Stock to employees of the Company and its subsidiaries.
The 1997 plan is substantially identical to the 1994 plan. Options to acquire
530,000 shares were outstanding under both plans at December 31, 2000.

Had compensation cost for the plan year been determined based on the fair
value of options at the grant dates consistent with the method of SFAS 123,
"Accounting for Stock-Based Compensation," the Company's net income and diluted
earnings per share would have been reduced to the pro forma amounts indicated
below.

FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------
2000 1999 1998
------------ ------------- -----------
Net Income (loss) applicable to
Common Shareholders ...
as reported $(9,083,012) $ (6,476,546) $ 4,323,472
pro forma $(9,205,687) $ (6,608,552) $ 4,207,743
Basic earnings (loss)
per share ......... as reported $ (1.94) $ (1.39) $ .93
pro forma $ (1.97) $ (1.42) $ .91

Diluted earnings (loss)
per share ......... as reported $ (1.94) $ (1.39) $ .89
pro forma $ (1.97) $ (1.42) $ .87

These pro forma amounts may not be representative of future disclosure
because they do not take into effect the pro forma compensation expense related
to grants before 1995.

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 2000, 1999 and 1998, respectively; no dividend
yield for all years; expected volatility of 65.00%, 55.20% and 66.63%; risk-free
interest rate of 5.55%, 5.64% and 5.23%; and expected lives of 10 years for all
years for options under the Plan.

A summary of the status of the Company's option plans as of December 31,
2000, and changes for the three years then ended was as follows:
2000 1999 1998
------------------ ------------------ -------------------
Weighted Weighted Weighted
Average Average Average
Number Exercise Number Exercise Number Exercise
of Price Per of Price Per of Price Per
Shares Share Shares Share Shares Share
------- --------- ------- --------- -------- ---------
Outstanding at
beginning of year 715,000 $ 3.98 683,000 $ 4.51 665,000 $ 4.10

Options granted 155,000 1.02 128,000 $ 2.73 88,000 5.56

Options exercised - - (20,000) $ 2.63 (11,000) 2.52

Options forfeited (340,000) 3.28 (76,000) $ 4.73 (59,000) 4.92
------- --------- ------- ------- -------- -------
Outstanding at
end of year 530,000 $ 3.56 715,000 $ 3.98 683,000 $ 4.51
======= ========= ======== ======= ======== =======
Options exercisable
at year end 233,000 $ 5.64 451,000 $ 4.39 268,600 $ 5.01
------- --------- ------- ------- -------- -------
Weighted average
fair value of
options granted
during the year $ 0.79 $ 2.00 $ 4.33
========= ======= =======

The following information applies to options outstanding at December 31, 2000

Number outstanding.............................. 530,000
Range of exercise prices........................ $0.65 to $9.50
Weighted average exercise price................. $3.56
Weighted average remaining contractual life .... 3 years 7 months

The following table summarizes information about non-qualified stock
options at December 31, 2000

Options Outstanding Options Exercisable
------------------------------------------------ -----------------------------
Number Weighted Number
Outstanding Average Weighted Exercisable Weighted
Range of at Remaining Average at Average
Exercise December 31, Contractual Exercise December 31, Exercise
Prices 2000 Life Price 2000 Price
- -------- ------------ ------------- ----------- ------------ -----------

$0.65 to
$0.98 110,000 5 yrs. $0.65 0 N/A

$1.87 to
$2.88 290,000 2 yr. 6 ms. $2.50 123,000 $2.58

$3.50 to
$5.25 30,000 2 yr. 8 ms. $4.65 10,000 $4.69

$6.63 to
$9.50 100,000 0 yrs. $9.50 100,000 $9.50

10. PREFERRED STOCK

In March 1998, the Canam Steel Corporation purchased from the Company 400
shares of authorized Series A Floating Rate Preferred Stock of the Company at
$10,000 cash per share or $4.0 million in the aggregate. In December 1999, the
Canam Steel Corporation purchased 400 shares of Series B Floating Rate Preferred
Stock of the Company at $10,000 cash per share, or $4.0 million in the
aggregate. In August 2000, Canam Steel Corporation purchased 40 shares of Series
C Floating Rate Preferred Stock at $50,000 cash per share, or $2.0 million in
the aggregate. In January 2001, Canam Steel Corporation purchased 20 shares of
Series C Floating Rate Preferred Stock at $50,000 cash per share, or $1.0
million in the aggregate. In March 2001, Canam Steel Corporation purchased 20
shares of the Series C Floating Rate Preferred Stock at $50,000 cash per share,
or $1.0 million in the aggregate. The Series A, Series B and Series C Floating
Rate Preferred Stock are hereafter collectively referred to as the "Preferred
Stock". The Series A Preferred Stock is entitled to receive, as and if declared
by the Company's Board, dividends at a floating rate equal to the rate payable
by the Company on its line of credit with its commercial bank. Series B
Preferred Stock is entitled to dividends at a floating rate equal to the prime
rate plus 0.8 %. The Series C Preferred Stock is entitled to dividends at a
floating rate equal to the prime rate plus 3.5% with a minimum rate of at least
12%. Dividends are paid quarterly in arrears, and if not declared or paid would
cumulate at the above mentioned rates, plus 50 basis points. For the year ended
December 31, 2000, the Company has accrued but not paid these dividends. The
Board of Directors of the Company passed a resolution in November 2000 to defer
payment of all accrued Preferred Stock dividends until a date after December 31,
2001. The Shareholder has been notified of the delay in payment and has waived
both payment of dividends and non-payment of penalties related to the deferred
payments of dividends until a date after December 31, 2001. The Company has
therefore classified the $1,115,092 Preferred Stock dividend payable as of
December 31, 2000 as an other long-term liability. The Preferred Stock: (i) does
not possess voting rights, (ii) is not convertible into common stock, and (iii)
is not redeemable at the option of the holder. The Preferred Stock is redeemable
at the option of the Company, but only (i) if and to the extent the Company's
net tangible assets at the end of any fiscal quarter and after such dividend
exceeds $4.5 million (Series A and B only), or (ii) if at least a majority of
the independent and disinterested members of the audit committee of the
Company's Board of Directors approve such redemption. The preceding provision
relating to redemption constitutes a covenant between the Company, the Company's
principal shareholder and its remaining shareholders and may not be changed
without the approval of at least a majority of the independent and disinterested
members of the audit committee of the Company's Board of Directors.

11. INCOME TAXES

The provision (benefit) for income taxes consists of the following:

Year ended December 31,
2000 1999 1998
----------- ------------ -----------
Currently payable:
Federal................... $ -- (6,399) $ (354,236)
State..................... -- (35,294) 23,018
Foreign................... 104,754 263,940 47,779
Deferred.................... (3,160,911) (3,746,956) 3,042,634
Change in valuation reserve. 3,160,911 -- --
----------- ------------ -----------
$ 104,754 $(3,524,709) $ 2,759,195
=========== ============ ===========

The Company's income, as reported in the statement of operations, differs
from taxable income as reported in its tax return principally due to the use of
accelerated depreciation for income tax purposes, and the accrual of warranty
expenses and other accruals for financial reporting purposes which are
deductible for income tax purposes when paid.

Deferred income tax expense (benefit) consists of the following:

Year ended December 31,
---------------------------------------
2000 1999 1998
----------- ----------- -----------

Depreciation.................................................... $ (76,307) $ 35,100 $ 51,133
Allowance for doubtful
accounts...................................................... (42,849) 23,658 (85,995)
Warranty reserve................................................ 441,160 1,083,025 4,298,704
Other reserves.................................................. (241,276) -- 549,398
Federal and state NOL carryforward.............................. (3,240,372) $(4,887,470) (1,490,071)
Increase(decrease) in valuation reserve......................... 3,160,911 -- (275,465)
Other........................................................... $ (1,267) $ (1,269) $ (5,070)
---------- ----------- -----------
$0 $(3,746,956) $ 3,042,634
========== ========== ==========

A reconciliation of income taxes with the amounts which would result from
applying the U.S. statutory rate follows:

Year ended December 31,
--------------------------------------
2000 1999 1998
----------- ---------- -----------

Tax expense (benefit) at U.S.
statutory rate................................................ $(2,777,720) $(3,296,183) 2,497,969
State income tax expense (benefit), net of
federal benefit............................................... (297,795) (348,359) 413,099
Excess foreign tax on foreign
subsidiary income............................................. 6,977 27,783 5,029
Amortization of certain
intangible assets and non-deductible meals and entertainment.. 76,679 93,881 115,623
Increase (decrease) in valuation allowance. 3,160,911 -- (275,465)
Adjustment of certain prior year reserves....................... (72,297) -- --
Other........................................................... 7,999 (1,831) 2,940
----------- ----------- -----------
$ 104,754 $ (3,524,709) $ 2,759,195
=========== =========== ===========

Significant components of the deferred tax balances at December 31, 2000
and 1999 are:

December 31, 2000 December 31, 1999
--------------------- ----------------------
Current Noncurrent Current Noncurrent
deferred deferred deferred deferred
-------- --------- -------- --------

Warranty reserve.......................... $ 593,102 $ 269,077 $ 380,316 $ 923,023
Other reserves............................ 406,582 165,937
Allowance for doubtful
accounts................................ 183,816 140,337 --
Depreciation.............................. (85,227) -- (161,534)

Net operating loss
carry forward........................... 9,893,378 6,653,006
Deferred tax valuation reserve............ (3,160,911) -- --
Other..................................... 24,563 23,295 --
---------- ----------- ---------- -----------
$1,208,063 $ 6,916,317 $ 709,885 $ 7,414,495
========== =========== ========= ===========

The Company's NOL Carryforwards (approximately $26.0 million as of December
31, 2000) begin to expire in 2017. At the beginning of 2000, based on the
anticipated level of operations and the uncertainty of value from the litigation
involving Dayco Products (See Note 12 of Notes to Consolidated Financial
Statements), the Company elected to record a valuation reserve in an amount
equal to its deferred tax benefit for its United States operations. In recording
the valuation reserve in 2000, the Company has not increased the Deferred Tax
Asset on its balance sheet since December 31, 1999. Realization of deferred tax
assets associated with NOL Carryforwards is dependent upon generating sufficient
taxable income prior to their expiration. The Company has reviewed the potential
outcomes of the litigation involving Dayco Products, as well as its future
operations and determined that it is more likely than not that the net carrying
value of this asset will be realized in future years as a result of taxable
income to be generated but will continue to monitor the valuation on an ongoing
basis.

12. PATENTS AND TRADEMARKS, LITIGATION AND CONTINGENCIES

In December 1994, the Company acquired a license for all inventions covered
by a third party's patents, patent applications and continuations in exchange
for a payment of $2.0 million in cash and $1.5 million of the Company's Common
Stock. The Company capitalized these costs as well as certain other acquisition
costs. The Company was expensing these costs over a 17-year amortization period.

Two cases were pending in the United States District Court for the Eastern
District of Pennsylvania, in which the Company, as exclusive licensee of these
certain patents, and the licensor of those patents sought money damages and an
injunction due to patent infringement by Environ Products, Inc. ("Environ") and
Environ sought a declaration of invalidity of the patents, non-infringement, and
unenforceability. These cases were to be tried in the fall of 1998. The court
issued an order on September 29, 1998, which among other things, granted
Environ's motions for summary judgment of invalidity of the patents and
non-infringement by Environ. This constituted a final judgment of all issues
which were material to these cases, and the licensor filed an appeal to the U.S.
Court of Appeals, Federal Circuit. As a result of this decision, the Company
wrote off during 1998 the current unamortized cost of this license, which was
approximately $3.7 million. By a decision dated September 15, 1999, the U.S.
Court of Appeals, Federal Circuit reversed the decision of the U.S. District
Court, and Environ petitioned the U.S. Supreme Court for a Writ of Certiorari.
The petition was denied and the cases were remanded to the District Court for
trial. The licensor's successor in interest, PISCES by OPW, Inc. ("OPW"), was
substituted in place of the licensor. OPW and Environ filed a motion to dismiss
the Company as a party in both cases and to dismiss both cases, in furtherance
of a settlement reached without the Company's participation. The court granted
the motion. The Company has objected and requested that it be permitted to
maintain its action against Environ. A related case was recently brought by OPW
against the Company in the United States District Court for the Southern
District of Ohio for money damages and an injunction alleging, among other
things, that the Company's license to make products covered by OPW patents,
including its Enviroflex(R) piping systems, terminated due to Company's failure
to make royalty payments. The suit alleges patent infringement of the same three
patents that are the subject of the litigation in the Eastern District action,
as well as an additional patent. The Company believes that it has certain
counterclaims that may be asserted against OPW, defenses to the validity of some
or all of OPW's claims,and other defenses to the action.

In January 1998, the Company settled and terminated litigation with two
competitors who claimed that they possessed licenses to manufacture and sell
underground systems with retractability and other features covered by patents
licensed to the Company. The purported licensees acknowledged that whatever
license rights they had were terminated and the Company paid approximately $1.64
million to them, excluding various other expenses associated with this
litigation of approximately $160,000.

During 1997, the Company initiated a legal action against Dayco Products,
Inc., a subsidiary of Mark IV Industries, in the United States District Court
for the Eastern District of Pennsylvania seeking, among other things, a judicial
determination that Dayco breached the provisions of two Supply Agreements,
entered into in 1990 and 1993 for the sale of primary pipe. The Complaint
alleged that Dayco supplied pipe that was defective because it was susceptible
to microbial fungus attack. In its suit, the Company requested that the Court
award damages to cover, among other things, the cost of inspecting and replacing
defective pipe and related costs in an amount to be determined at trial and for
further appropriate relief. (See Note 2 of Notes to Consolidated Financial
Statements.) The Company also sued for breach of the pricing provisions of the
Dayco Agreement. Dayco filed a counterclaim for approximately $4.0 million for
goods, services, and freight contracted for by the Company, under the Dayco
Agreement (See Note 13 of Notes to Consolidated Financial Statements) and
damages for alleged breaches of various duties purportedly owed to Dayco. After
a five-week trial, on November 16, 2000, the jury awarded the Company $23.0
million in damages for breach of the pricing provisions, which was significantly
higher than the $1.3 million in damages the Company requested for Dayco's price
overcharges. The jury also found that the Company's claim for breach of warranty
regarding allegedly defective piping products supplied by Dayco was time-barred
by the statute of limitations. The jury awarded Dayco approximately $3.7 million
in damages in Dayco's counterclaim against the Company for breach of contract
for the outstanding accounts receivable. The Company has maintained a liability
on its balance sheet since 1997 for Dayco's counterclaim. Both the Company and
Dayco have filed post-trial motions, which are presently pending before the
Court. The motions address whether the jury's $23.0 million verdict should be
sustained, reduced, or eliminated, or in the alternative, whether the Court
should grant a new trial on the Company's claims, in whole or in part.

In addition, Dayco initiated a separate legal action against the Company in
February 1999 in the United States District Court for the Western District of
Missouri, alleging that the Company is infringing certain patents held by Dayco
relating to hose couplings and seeking, among other things, a determination of
infringement, damages, and injunctive relief. In July, 2000 the Court issued a
summary judgment in favor of the Company on the basis that the Company was not
infringing the Dayco patents. Dayco has filed an appeal to the United States
Court of Appeals for the Federal Circuit, which is currently pending.

A legal action was filed in the Fifth Circuit Court of the State of Hawaii
on September 16, 1997 by JJR Inc., James Jasper Enterprises, Inc., and others
with interests in a retail shopping center on the Island of Kauai, Hawaii,
against the Company, Dayco, and Senter Petroleum, Inc. for damages allegedly
resulting from the failure of the Company's Enviroflex piping system on or about
August 12, 1996 at The Little Gas Shack (the "Shack"), a retail gasoline service
facility supplied by Senter Petroleum, Inc., adjacent to the shopping center.
Prior to trial, a settlement was reached between the plaintiffs and all of the
defendants except Senter Petroleum, under the terms of which the Company's
insurance carrier will make a nominal payment, and the Company will be released
from the claims of plaintiffs, and indemnified against the claims of Senter.

Other Litigation. The Company is also involved in various other legal
actions incidental to the conduct of its business. Management is contesting
these cases vigorously and believes it has meritorious defenses in each matter.
Management does not believe the ultimate outcome of these various legal actions
will have a material effect on the Company's financial condition, results of
operations or working capital requirements.

13. COMMITMENTS

Dayco Agreement. On January 1, 1993, Dayco and the Company entered into a
five-year supply agreement (the "Dayco Agreement") pursuant to which Dayco
agreed to sell Enviroflex primary pipe exclusively to the Company for use in
flexible double-wall underground piping systems and the Company agreed to
purchase such pipe exclusively from Dayco. During 1997, the Company terminated
this agreement (See Note 12 of Notes to Consolidated Financial Statements).
Dayco has asserted that it is entitled to payment of approximately $4.0 million
for goods, services, and freight contracted for by the Company under the Dayco
Agreement. The Company has declined to pay this for the reason, among other
things, that management estimates that amounts owed to the Company by Dayco
exceed the amount to which Dayco claims it is entitled. As discussed in Note 12,
the jury awarded Dayco $3.7 million for its claim. The Company has not adjusted
the amount recorded on its balance sheet as this matter is not resolved.

Employment Agreements. The Company has employment agreements with certain
key executives that provide severance pay benefits if there is a change in
control of the Company. The agreements will continue in effect on a year-to-year
basis until terminated or not renewed by the Company or key executives. Upon a
change in control, the Company shall continue to pay the key executives'
salaries per the agreements and certain benefits for the agreed upon time
periods. The maximum contingent liability under the agreements at December 31,
2000 was $230,000.

Lease Commitments. The Company leases its facilities, certain office
equipment and vehicles under noncancelable operating leases. Total rental
expense under these leases for the years ended December 31, 2000, 1999 and 1998
was approximately $870,000, $1,075,000, and $943,000, respectively.

Future minimum lease payments under noncancelable operating leases at
December 31, 2000 are as follows (rounded to the nearest thousand):

Year ended
December 31,

- ------------
2001............................................ 839,000
2002............................................ 715,000
2003............................................ 683,000
2004............................................ 3,000
2005............................................ --
----------
2,240,000

==========

14. FOREIGN OPERATIONS AND EXPORT SALES

Summarized financial data with respect to the operations of TCIE-NV at
December 31, 2000 and 1999 and for the years then ended follows (rounded to the
nearest thousand):

2000 1999
----------- -----------
Total assets................................... $ 2,372,000 $ 2,113,000
Total liabilities.............................. 346,000 537,000
----------- -----------
Net assets..................................... $ 2,026,000 $ 1,576,000
=========== ===========
Net sales...................................... $ 3,336,000 $ 3,248,000
=========== ===========
Net income..................................... $ 187,000 $ 384,000
=========== ===========

The Company's net sales by geographic region (rounded to the nearest
thousand) are as follows:

Year Ended December 31,
-------------------------------------
2000 1999 1998
----------- ----------- -----------
Net Sales:
United States........................ $12,024,000 $18,938,000 $41,950,000
Canada............................... 359,000 892,000 1,646,000
Mexico, Central and South America.... 725,000 1,407,000 5,059,000
Europe and the Middle
East................................ 3,336,000 3,248,000 3,781,000
Southeast Asia,
Australia and New

Zealand............................. 211,000 428,000 1,146,000
----------- ----------- -----------
Total................................. $16,655,000 $24,913,000 $53,582,000
=========== =========== ===========

15. QUARTERLY INFORMATION (UNAUDITED)

The Company's operations generally experience higher volume of product
sales in the second and third quarters of each year in part due to buying trends
of distributors who eventually sell the Company's product to the end user. Also,
demand for the Company's products is generally lower during the winter months
than in other seasons, particularly in regions of the United States where
distributors may be subject to harsh winters. Accordingly, the Company expects
revenue and operating results to be generally lower in the first and fourth
quarters as compared to the second and third quarters.

The following is a table of certain items in the Consolidated Statements of
Operations by quarter for 2000 and 1999.

(In Thousands, except Per Share Data)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER

Revenue......................... 2000 $ 3,980 $ 4,401 $ 4,475 $ 3,799
1999 7,770 7,136 5,742 4,265
Operating loss.................... 2000 (1,377) (2,156) (1,490) (2,270)
1999 (1,421) (2,069) (2,337) (3,143)
Basic loss per share................ 2000 (0.38) (0.55) (0.42) (0.59)
1999 (0.22) (0.31) (0.35) (0.51)
Diluted loss per share.............. 2000 (0.38) (0.55) (0.42) (0.59)
1999 (0.22) (0.31) (0.35) (0.51)
Net loss........................ 2000 (1,566) (2,378) (1,706) (2,625)
1999 (965) (1,389) (1,543) (2,273)